Thursday, October 27, 2011

It's Not Too Late to Get in, Just Control the Risk

ASX up 2.5%, China 0.35%, HK 1.7%, sp500 futures 1.35%.

We're seeing price action in the majors flying straight through the top level of resistence i.e CBA breaking 48.50, BHP breaking 38.5 and we're seeing commodity prices will be soon to catch up quickly to the headlines, and we'll likely see some of the underperformers in the financials really catch a bit tonight - I'm looking at euro banks here, with the clearly defined haircuts in the greece debt and the 1.4tn debt deal, financials will be in trading focus tonight.

The rally to the upper end of resistence levels have been on light volume, which suggests that some of the bigger money players are yet to enter - cautiously awaiting the euro situation to resolve - thus the current upswing can be pretty much what you call the break-even trade - where a lot of the players who had extra capacity to 'double down' - this is where you'll see the strong hands who were able to offload before the main body of the sell-off decide to either go short or actually add some long exposure to their portfolio. Chances are that we'll see the trampling of participants here - as we are now just in the mid-stages of a 4th qtr rally - yes, we'll see more like 5-10% gains here til December, which is a lot less than the 10-15% we saw in the past 2 weeks, but that's the cost of being conservative.

A key headline for the china story is that inflation is that CPI is down, and PMI is up (over 50) - if we get a consistent message of global economic data being o.k - i.e gdp growth in the US - then we could really see a race to the bidding blocks tonight.

So we've got technicals i.e top level prices being broken to the bullish delight of momentum traders, and now we've got the fundamentals of sentiment out of europe, and economic data out of China and US not being as bad as anyone feared - so what are we waiting for?